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Access to Lower Fees

IRWINDALE - As chief operating officer for SCE Federal Credit Union, George Poitou strives to maintain a high level of service and keep fees low for credit union members.

But when Congress adopted the Wall Street Reform and Consumer Protection Act last year, a last-minute provision was added that he says will have a negative effect on SCE's members.

The add-on will reduce the interchange fees that help fund a variety of services at credit unions, including card issuance, free checking, 24-hour technical support and risk management protection for consumers against incurring financial loss from fraud.

The federal bill is scheduled to go into effect July 21. Interchange fees are the "micro fees" card issuers charge merchants every time a customer pays with a credit or debit card. Those fees, according to Poitou, are crucial to supporting the operations of credit unions and also help to keep member fees low.

Interchange fees currently average 44 cents per transaction. But they would be limited to 12 cents per transaction under the new provision.

"If the fees we get from merchants were reduced by 70 percent, we would have lost money last year," Poitou said. "If this goes into effect we'd have to either not have free checking, which we've had for a long time, or we'd have to change the interest rates on our loans and deposits."

The legislation does include an exemption for credit unions and financial institutions with less than $10 billion in assets, which includes SCE Federal Credit Union.

But Federal Reserve Chairman Ben Bernanke and others have said that exemption would be tough to enforce.

A lot is at stake. Last year merchants paid credit unions and banks $20.5 billion in debit fees, $2.6 billion of which went to credit unions.

As a not-for-profit institution, SCE generates net income of only half a percent, according to Poitou.

"The rest goes for salaries and things like operational costs, building leases, electricity and audits," he said. "And one thing this bill doesn't recognize are the costs associated with fraud. When that occurs, we have to pay for that."

"The Federal Reserve was supposed to release the final rule on April 21, but with all the outpouring of comments they're not going to make that deadline," said Jeremy Empol, the league's director of federal government grass roots advocacy. "But they will make the July 21 deadline for when this has to go live."

SCE Federal Credit Union and the California Credit Union League both support a newly proposed bill (the Debit Interchange Fee Study Act of 2011) that would delay the rule and require further study to factor in all of the costs associated with accepting debit and credit cards.

Poitou said credit unions are often able to help people who otherwise wouldn't be able to get loans anywhere else. "We operate completely different than banks do," he said. "We modify loans right from the beginning. Without our help, many people would be out of their homes today."

On Thursday, Bernanke told Senators that he is doubtful the Fed can develop a rule that would adequately protect credit unions and small banks from the cuts in debit fees mandated for the biggest banks.

Bernanke said it will affect the revenue of small issuers, with some banks being less profitable "or even failing."